TMI Blog2021 (10) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... d also purpose of payment - HELD THAT:- On a reading of whole of clause 3.3 of the agreement, we are of the view that the commission expenditure shall accrue as and when the sales is finalized. Hence, we are of the view that the Ld. CIT(A) was not justified in taking the view that the commission expenditure shall become due only when the payment is received from the customers. In the case of KCP Ltd. [ 2018 (6) TMI 514 - TELANGANA AND ANDHRA PRADESH HIGH COURT] has upheld the view of the Tribunal in holding that the liability to pay commission accrues when orders were secured by agents and not when supplies were effected by the assessee. There is one more angle with regard to the claim of the assessee. Under revenue cost matching principle , all expenses incurred in generating the revenue should be provided for in the books of account and also under the Principle Prudence , all known liabilities have to be provided for in the books of account. In the instant case, the assessee is aware that it would be liable to pay commission amount to Md. Ziaul Hassan Khan when the sales is finalized and this commission expenditure is related to the revenue generated during the year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the order passed by Ld. CIT(A)-10, Bengaluru and they relate to the assessment year 2014-15. 2. The assessee is in appeal in respect of the following issues:- a) Non-granting of deduction u/s 35(1)(i) 35(1)(iv) of the Income-tax Act,1961 ['the Act' for short]. b) Disallowance of provision for commission. c) Non-setting off of brought forward losses and unabsorbed depreciation. d) Non-granting of refund. 3. The revenue is in appeal on the following issues:- a) Disallowance u/s 35(2AB) of the Act. b) Disallowance u/s 14A read with Rule 8D(ii) 4. The assessee is engaged in the design, development and manufacture of telecommunication equipments. 5. We shall take up the appeal filed by the assessee first. The first issue urged by the assessee relates to non-granting of deduction u/s 35(1)(i) 35(1)(iv) of the Act. The Ld. A.R. submitted that the assessee did not claim the above said deductions in the return of income filed by it. However, during the course of assessment proceedings, the assessee filed a revised computation of income, a copy of which is placed at page No.26 of the paper book, wherein the assessee claimed de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that the claim of the assessee deserves admission. Accordingly, we admit both the claims of the assessee and restore the same to the file of the A.O. for examining them in accordance with law. 9. The next issue urged by the assessee relates to disallowance of provision for commission expenses. The A.O. noticed that the assessee has claimed a sum of ₹ 56,97,530/- as commission amount payable to Mr. Md. Ziaul Hassan Khan. The A.O. has observed that the assessee has not furnished the details of computation of commission amount and also purpose of payment. Accordingly, the A.O. disallowed provision for commission expenses of ₹ 56,97,530/-. 10. Before Ld. CIT(A), the assessee furnished copy of agreement entered by it with Md. Ziaul Hassan Khan with regard to payment of commission. It was submitted that the provision for commission relates to commission payable to the above said agent for procuring sales orders in this year. The Ld. CIT(A) examined the agreement more particularly paragraph 3.3 of the agreement, which reads as under: 3.3 Subject to this Article 3, TEJAS shall pay Service fee to the Service Provider after the sales made pursuant to thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the Ld. CIT(A) was justified in confirming the disallowance of commission payments. 13. We heard the parties on this issue and perused the record. A careful perusal of first line of clause No.3.3 of the agreement entered by the assessee with Md. Ziaul Hassan Khan, which is extracted above, would show that the assessee shall pay service fee (commission) to the agent after the sales made pursuant to this agreement are closed , i.e., the commission shall accrue after the sales is finalized. However, the same shall become due for payment only after receipt of money from the customer. On a reading of whole of clause 3.3 of the agreement, we are of the view that the commission expenditure shall accrue as and when the sales is finalized. Hence, we are of the view that the Ld. CIT(A) was not justified in taking the view that the commission expenditure shall become due only when the payment is received from the customers. In the case of KCP Ltd. (supra), the Hon ble A.P. High Court has upheld the view of the Tribunal in holding that the liability to pay commission accrues when orders were secured by agents and not when supplies were effected by the assessee. 14. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the product development expenditure would not fall under the category of research development expenses eligible for weighted deduction u/s 35(2AB) of the Act, even though the expenditure has been certified by DSIR in Form 3CL a R D expenditure. Accordingly he took the view that the weighted deduction amount in respect of Product development Expenditure is not allowable. It is pertinent to note that the AO had made identical disallowance in an earlier year and when the matter reached Hon ble Karnataka High Court, it has expressed the view that the A.O. has no jurisdiction to sit in the judgement over the report submitted by DSIR in form No.3CL. The appeal filed by the revenue before Hon ble Supreme Court against the decision rendered by Hon ble High Court has also been dismissed. In the instant year, the AO has noted the judicial ruling referred above. However, the A.O. chose to disallow weighted deduction amount of ₹ 51,94,27,366/-(50% of ₹ 103,88,54,734/) in order to maintain consistency. 20. The Ld. CIT(A), deleted the disallowance of ₹ 51,94,27,366/- by following the decision rendered by Hon ble High Court of Karnataka in the assessee s o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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